Incentive package for garments helped increase exports

Export incentive packages announced by the government to support vulnerable sectors do have a positive impact on performance of some categories, the Economic Survey has highlighted.

A case study of the ₹6,000-crore export package announced for the apparel sector by the government in June 2016 published in the Survey shows that the growth in clothing exports (manmade fibre) compared to other labour-intensive and manufacturing goods, which did not receive the incentives, was much higher.

Incentive packages

Exporters, however, point out that while incentive packages play a vital role in boosting export growth, proper implementation of the package was equally important to maximise gains.

“The package, which included rebates on State levies (ROSL), started off well and was a big help in increasing exporters. But for the last five-six months, payments to exports are stuck as Customs has not received money from the Textiles Ministry. Such issues related to faulty implementation prevents schemes from delivering to their full potential,” said HKL Magu, Chairman, Apparel Export Promotion Council.

Moreover, small exporters need to be made aware of such packages as it is mostly the large exporters who benefit from them. “As part of the AEPC, we have started seminars at the cluster level to make small exporters aware of all the existing schemes,” he added. The largest component of the package for the apparel sector were ROSL to offset indirect taxes levied by the States (the VAT) that were embedded in exports. This ROSL was over and above the duty drawbacks and other incentives that were given to offset indirect taxes embedded in exports.

After the package, the ROSL increased export incentives by between 2.8 per cent and 3.9 per cent.

To demonstrate whether the package succeeded in increasing exports, the surveyors used the difference-in-difference approach, which allows the impact of the package to be isolated. “Essentially, the approach asks whether the gap between clothing and comparator group export growth increased after the package was introduced,” the Survey explained.

Key findings

The three main findings were that the package increased exports of readymade garments made of man-made fibres, the impact increased gradually over time with the cumulative impact of about 16 per cent by September 2017 and that it did not have a statistically positive impact on garments made of other fibres (silk, cotton, etc).